Last week, the state legislature passed AB 465 — a bill that prohibits employers from asking employees to agree to arbitrate employment claims unless the employees have their own attorneys negotiate the terms. Passing the bill looks like a futile exercise. The Federal Arbitration Act preempts state law in this area. In 2011, when the U.S. Supreme Court decided AT&T Mobility v. Concepcion, it said:

When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.

Let’s break that down. “When state law [like AB 465] prohibits outright arbitration of a particular type of claim [like employment claims], the analysis is straightfoward: The conflicting rule is displaced by the FAA.” Seems pretty clear. So what’s the point?

The introductory language to AB 465 expresses concern about contracts that are coerced or involuntary. But coercion and lack of consent have always been grounds to invalidate contracts. Also, California law on employment arbitration agreements already requires the employer to foot the bill, prohibits any limitations on employees’ remedies, and imposes numerous other requirements to ensure fairness. So why go to the trouble of passing a law that relatively recent Supreme Court precedent says is invalid?

Some, like Maryann Maloney of California Citizens Against Lawsuit Abuse, say its so that “trial lawyers” (a shorthand term that overlooks the fact that we defense lawyers try cases too) know that they can make more money trying cases before juries than before arbitrators. (She’s saying it. Not me. I have to work with these people.)

Whatever the reason, if Governor Brown signs the law, it will create a great deal of unnecessary litigation as employers go through the time-consuming and expensive steps of getting it declared invalid. It will also give businesses that have a choice of where to locate yet another reason to avoid California 

Even with this added uncertainty, for reasons I’ve described before, I still believe arbitration makes sense for most employers with California operations.